* Greek auction, earnings push euro up vs dollar
* Negative impact of Portugal downgrade short-lived
* Sterling jumps after UK inflation data
* Surprise widening of U.S. trade gap weighs on dollar
(Adds details, comments. Changes byline)
By Steven C. Johnson and Vivianne Rodrigues
NEW YORK, July 13 (Reuters) - The euro hit a two-month high
above $1.27 on Tuesday after a smooth Greek treasury bill
auction eased some concerns about Europe's debt crisis and took
the sting out of another credit rating downgrade for Portugal.
A strong start to the U.S. corporate earnings season drove
risk appetite and also helped the euro, which rose more than a
cent on the day. A surprise widening of the U.S. trade deficit
in May weighed on the dollar.
Sterling soared after hotter-than-expected UK inflation
data left investors betting that the Bank of England may have
to start thinking about higher interest rates.
A "very positive" start to earnings season boosted risk
appetite, overshadowing the Portugal downgrade and helping the
euro, said Fabian Eliasson, vice president of currency sales at
Mizuho Corporate Bank in New York.
"The euro has gone along for the ride," he said.
Alcoa Inc <AA.N> earnings lifted stocks more than 1
percent, and Eliasson said the euro could gain further if
forthcoming quarterly reports from JPMorgan Chase & Co <JPM.N>
and Intel Corp <INTC.O> don't disappoint.
The euro hit a session peak of $1.2739 <EUR=EBS> and was
last up 1 percent to $1.2712. It earlier fell to a one-week low
of $1.2522 in European trade after Moody's Investors Service
cut Portugal's sovereign rating by two notches. A U.S. bank was
seen protecting a short-term option barrier at $1.25.
The euro began to recover after Greece sold 1.625 billion
euros ($2.03 billion) of six-month T-bills at a better rate
than it pays to borrow under a European Union/International
Monetary rescue fund. For more see [].
A strong response to a Spanish debt auction had taken the
euro to $1.2723 last Friday.
Sterling rose 1 percent to $1.5191 <GBP=D4>, well off a
session low beneath $1.50, after quarterly consumer price
inflation remained above the Bank of England's 2 percent target
rate. []
Against the yen, the dollar fell 0.3 percent to 88.37 yen
<JPY=>, moving further away from gains booked a day ago after
Japan's ruling party suffered a stinging defeat in
parliamentary elections.
UNWELCOME TRADE REMINDER
A wider-than-expected May U.S. trade deficit also raised
some concern about U.S. growth and renewed focus on the United
States' own budget concerns, analysts said. []
"It's a long-term trend that's been out of the spotlight for
a while, but this reminds everyone that it's a major negative
hanging over the dollar," said Brian Dolan, chief strategist at
Forex.com in Bedminster, New Jersey.
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange Inc, said the deficit number "could detract precious
percentage points from second-quarter GDP, and in that respect
may be mildly negative for the dollar."
Markets, however, still expect growth in the U.S. economy
to outpace that of its counterparts in Europe and Japan, which
should continue to support the dollar against the euro.
The dollar had recently pulled back from a rally, "but
we're still in very favorable ranges," said John Doyle,
strategist at Tempus Consulting in Washington.
(Additional reporting by Nick Olivari in New York; Editing by
Padraic Cassidy)
